Nvidia needs to address margin and competition worries
Related
news
13 August 2026
Can fund managers really ignore where the companies they invest in are based?6 min readAuthor
Shares Magazine
AI chip maker Nvidia is heading into its quarterly results with arguably the most subdued sentiment it has seen since the AI theme got underway – bar perhaps the period around Liberation Day tariffs in April 2025.
As Bank of America (BofA) analysts observe there are four main points of concern for investors. One is the pressure it might face on gross margins from increased costs, particularly for memory-related kit. Another is competition from custom-made AI chips – something which Alphabet-owned Google has been at the forefront of in partnership with Broadcom of late.
BofA’s Vivek Arya thinks these worries are overdone – suggesting the company has underappreciated pricing power which will allow it to pass on higher costs to customers and therefore protect its profitability. He also notes that custom chips have been around for several years, from the likes of Google, Amazon and Meta, and that hasn’t proved an impediment to its recent growth. In his view Nvidia will sustain a 65% to 70% share of overall AI capital expenditure over the long term.
Investors will be looking for evidence to back up this confidence in both its competitive position and margin performance when it unveils its second-quarter earnings on 26 August.
Concern about being a crowded trade and investing in customers
Arya gives slightly more credence to fears that Nvidia is now a crowded trade given it is in 78% of active S&P 500 funds and to reservations about its use of cash to invest in customers – such as Coreweave, Nebius and ChatGPT-owner OpenAI – rather than rewarding shareholders with dividends and share buybacks.
The resemblance to vendor financing, where clients are lent money to pay for goods and services, may have uncomfortable echoes for those who can recall the dotcom boom and subsequent crash. Back then companies like Cisco and internet equipment giants provided this financing, which boosted demand in the near term but exacerbated the slowdown which followed.
The more sober feeling in the market towards Nvidia is reflected in its valuation. Based on consensus forecasts the company trades on less than 19 times 12-month forecast earnings – its lowest level in nearly eight years.
Eve Maddock-Jones: Funds and Investment Trust Writer
Eve joined AJ Bell in 2026 as a funds and investment trust writer. She was previously editor at Investment Week, reporting on all major retail investor news, covering funds and investment trusts, ETFs and regulation...
